Professional Documents
Culture Documents
PPP Issues
Advantages
off-balance sheet introduces private sector capital into public service provision introduces private sector practices & efficiencies promotes competitive markets [ NB does it??] facilitates innovation
Disadvantages
complex structure & documents [min 25mn?; no IT projects] time-consuming to arrange high up-front costs demands significant senior staff attention Is PSC methodology reliable? difficult to resolve when in default
common contractual terms and documents applicable across all sectors?? windfall gains from re-financing : the nature of the Partnership short-term perspective of investors: secondary equity contingent liability of Govt. created by PPP contractual payments EU procurement rules: conflicts with realistic negotiation process. [ Is the use of Competitive Dialogue acceptable?]
financial strength of bidders?? Only large cos bid. Reduces competition? skills shortage in sponsor Govt. departments and agencies. identity and governance of PPP investors independence of financial advisors and conflicts of interest the benefit of public interest companies : safety v. profits (transport) Govt. political life-cycle often shorter than project maturity of PPPs
PPP Case Studies Municipal: Water, Waste, Property, Urban Transport, Airports
Local currency tariffs. Highly regulated. Project finance supported by throughput aggt.? Availability of water sources?
High investment costs? Local currency tariffs. Availability of water sources? Private sector monopolies? Low profit margins Political interference? Highly regulated.
Water Distribution
Local currency tariffs. Lower investment required. Private sector monopolies? Low profit margins Political interference? Highly regulated.
Project:
APA Nova, Bucharest Water System, 1996/2000. (a) improvement in water supply; (b) Crivina treatment plant 132 million
Value:
Participants:
Funding:
EBRD 75 million loan (private sector loan) - Tariff adjustment by agreement - Intl. competitive bidding for PPP concession - EBRD funding investment - Concessionaire responsible for billing/collection.
Issues:
3: Share Capital
[Seafield]
5: O & M Contract
Lenders Banks
2: Construction Contract
Project:
Almond Valley / Seafield & Esk Water Project, Edinburgh, Scotland 135mn. 30 yr. concession.
Value:
Participants:
Thames Water, MJ Gleeson; Montgomery Watson 100mn [+ 10mn] AMBAC wrapped 27.5 yr bond. 4mn equity; 13mn sub-debt. - Limited construction risk; - Govt.-owned service purchaser; - Strong mgt. team; - Local op. precedents.
Funding:
Issues:
Technical: (a) Incineration has track record over many years (b) Mech. Biological Treatment (MBT), etc.: will it be a long-term success? Fixed off-take PPAs v. merchant power risks? Which is more viable? Planning: EU landfill Directives. Additional Renewables Regulations to be imposed? RO Risk? : EFW & CHP = 1 RO; [EFW = Energy from Waste] Adv. Conversion Tech. (e.g. pyrolysis, gasification, etc.) = 2 RO
Project value minimum? : Project value > 20 mn. in UK (for PFI credits)
2 Councils
1.: Services Aggt. 2.: Share Purchase Aggt. 3.: Env. Indemnity
Mercia
100% Org. Waste Aggt. O&M Aggt.
Thames Water
Loan
Bank
EA [Govt.]
Urbaser
70 85mn. [85 100mn] investment in plant; 2 municipalities; Dragados & FCC (Spain). 55 mn [65mn.] debt. - 0.5 MT of waste per annum per house. - includes collection and mgt. of waste-fill site and new plant; - build waste-to-energy plant; - revenues from: (a) fee per ton collected; (b) fee per ton managed at sites; (c) fee per ton recycled. - Credit-worthiness of municipal counterparts??
Private companies
Housing
Offices; private
Offices: Govt.
Sports Stadiums
Car Parks
Private; PPP?
PPP Schools
Value:
Participants:
Funding:
Issues:
Project:
HM Treasury Building, London: Grade II listed building. Rebuild & maintain over 35 years.
[NAO HC 328 01-02]
Value:
142mn. [ = 160mn.]
Participants:
Funding:
Issues:
Bovis (42.5%); Stanhope (42.5%) Chestertons (15%) - Govt. to pay 14mn pa. [ lifetime = PV 170mn]. - 5% equity; 4.4% mezzanine debt; 90.6% 128mn. 38 yr. bond issue [AMBAC wrapped] - Development of standard documents; - Competitive funding: 28 banks bid; saving = 13mn. PV. - Govt. paid legal/tech./fin/ins. advisers for Govt.; Exchequer; & Funders. - Equity IRR = 16%
Government IT Project
Project:
Value:
Participants:
Issues:
Changes in project specification; Underestimate of R & D for system. Lack of understanding of PPP by both parties Difficulties when problems arose: poor documentation No more IT PPPs in UK!!
Value:
Participants:
Funding:
Issues:
- Project concept (OJEC) : Oct 1995; bids received Oct 1996 - Fin. Close: July 2000 - Special Govt. Bill needed to allow Trusts to contract PPP.
LIFT, UK [e.g. local PPP health centres] [LIFT = Local Improvement Finance Trust]
Property Dev.
Property Mgt.
National JV
[Partnerships UK & Dept. of Health.]
20%
20%
Contract
Funding:
Issues:
Debt / equity: (a) = 85/15; (b) 90/10. 18 yr. bank loans - Occupancy risk left with Govt.; - Performance v. cell availability. NB. Food; health; etc. - Spec. changes over concession period; - Efficiency gains shared. 13-19% cost savings; - Tariff indexed to RPI; - HMPS provides malicious damage insurance. - Cells built to HMPS spec. - Refinancing gains [2001]
Value:
546 mn. Integrated Accommodation Services (IAS) Carillion (40%); Group 4 (40%); BT (20%) 398mn bond issue 44mn sub debt; Balance IDC & revenues during constr. - Moving from existing sites, etc. - IAS responsible for site security - Group 4 sold its stake to Englefield Capital & Electra Partner Europe
Participants:
Funding:
Issues:
Value:
Participants: 82mn senior loan 4.6mn sub debt; Equity: 2.2mn. - High spec. building - Some residential property development possible. - Changes in spec. arose. - Difficulty in meeting specifications. (Project collapse when 50% complete)
Funding:
Issues:
Value:
546 mn. Integrated Accommodation Services (IAS) Carillion (40%); Group 4 (40%); BT (20%) 398mn bond issue 44mn sub debt; Balance IDC & revenues during constr. - Moving from existing sites, etc. - IAS responsible for site security - Group 4 sold its stake to Englefield Capital & Electra Partner Europe
Participants:
Funding:
Issues:
Value:
TOTAL Participants: WNSL / FA Equity Sport England LDA & DCMS grants Debt
= 757mn.
Funding:
Difficult to ring-fence the risks. Traffic often low, diffuse & unpredictable. Local currency revenues & costs. Labour intensive. Private sector more flexible & innovative. Traffic risk more identifiable & controlled. Local currency revenues & costs. Many successful intl. precedents.
300 million equiv. Completed as a PPP-type concession by a German-Austrian contractors with Hungarian partners. Promotor: BNP, France. EBRD provided equity, an A loan and gtees for local forint bond issue. 1st toll-road in E. Europe. Deal of the Year 1993-4.
Key MOL; BNP; Caisse des Depots; Strabag; Transroute,; EBRD. Participants: Issues: 1997: After opening, traffic was 30% of expected demand. 1. in 1998 default occurred, but road remains operational; 2. local courts supported claims of high tariffs; 3. local groups sued for environmental damage. 4. project restructured in 2000; Govt. took project responsibility
Lessons
Croatia:
Bina Istra 1A & 1B: Bouygues-led PPP consortium 1A (1999): 44km new highway plus 36 km of upgrade Cost = 170 million equiv.; US $109 mn. Comm.. bk loan 1B (2004) : Cost = 390 million incl. refinancing Phase 1B. Bond issue unwrapped (BB+) = 210 mn. Comm. Bk loan = 72 mn. Issues: 1: There were toll roads precedents in Croatia; 2: Revenue support mechanism from Govt. via DSRA top-up 3: Tunnel risk (5km.) removed from construction risk 4: Govt. had S & P rating (BBB-)
Croatia
Zagreb Macelj Motorway [2004]: Walter Bau & Strabag (49%) ; RoC (51%) 28 yr PPP concession 312mn commercial bank loan. Contract for gen. concession awarded 1997 ; Fin. Close Jul 2004.
Slovenia: Precedent for tolls, but Govt. chose conventional funding for 465km motorway.
Hungary: M5 Motorway, Budapest Serbia [97 km], 1994-98; Cost = 380 million. Consortium led by Bouygues. Operator : Intertoll Issues: 1: Optimistic traffic forecasts. Payt. against traffic volumes 2: Unbankable, compounded by devaluation of HUF. 3: Refinanced 2004 against Availability Payts., but not nationalised
Street Lighting:
M25 Widening.
1: 100km of new lanes to be built. 2: Maintenance of existing highway. 3: Value 1.6 bn. 4: Bid under preparation. As for Portsmouth. Value 2 billion
200 million [125 mn Govt. Grant. ] 28 km tramway; 3 routes to/from Croydon, S. London; 24 trams serving 38 stops; 3.5 km on streets; 6.5km on new alignment; 18 km on exheavy rail track. 99 yr concession (DBOMF) Tramtrack Croydon Ltd [RBS 20%; Bombardier 20%; Amey 20%; First Centre West (op.) 20%; Sir R.McAlpine 20%] Completion and traffic risk with concessionaires 1: Financial collapse due to lack of transport integration. 2: Some technical issues. 3: 2008: sold back to Govt. & shareholders paid out
Lessons
Lessons
Govt. [TfL]
Passengers
LUL
Train & Stn. Planning & Ops. Safety Invest & Maintain Infrastructure
LUL PPP
JNP = Tube Lines Gp. Bechtel; Halcrow Amey; Jarvis Ferrovial
Govt. [TfL]
Passengers
BCV & Sub-Surface = Metronet Bombardier; WS Atkins; Balfour Beatty; Seeboard; Th. Water. 2007
[contracting failures]
[NB role of PPP Arbiter]
Infraco 2 BCV
Bakerloo; Central; City; Victoria.
Infraco 3 JNP
Jubilee; Northern; Piccadilly.
Cargo Terminals Corporate Projects; PPP Concessions Runways; Aprons Aircraft Maintenance Air Traffic Control Govt.
Project Name:
Mother Teresa Airport Concession (20yr), Albania [2005] [500,000 pass. p.a.; 1800T cargo; 10,500 ATMs; no competition] New pass. & cargo terminal; upgrade of aprons & access rd. (7km) Cost = 46.2 million Equity = 9 mn: Hochtief (47%), DEG/KfW (32%); AAEF (21%) Debt: EBRD 1: 12 mn; 12 yr repayt incl. 3 yr grace EBRD 2: 9 mn; 15yr repayt incl. 3 yr grace (Sovereign Loan) Loan 3: Alpha Bk/DEG/Am Bk of Alb = 12.9mn Hochtief AG; GoA advisers: Deloitte; Halcrow & Allen & Overy 1: Jan 2005: select preferred bidder; Feb 2005: EBRD Approval 2: Payt cascade: (a) O & M; (b) payt of up-front fee to GoA (3mn); (c) debt service on 1996 24mn KfW loan to GoA; (d) gtee fee for sovereign loan; (e) 30% of dividends. 3: derogation of Banks Procurement Rules for road component. 4: aeronautical revenues = 90%; 30% Albanian Airlines
Value:
Features:
Value: Funding:
81 million in three stages Equity 27 mn (33%) : 90% from Sponsors (Petrolvilla & Bartolotti (It); Petrolvilla Intl, Lux ; AE-EW (Mun. of Bolzano & Merano, S. Tyrol, It.); Finest (NE Italy mun) & 10% Mun. of Vez Svoghe (10%). Debt: 54 mn (66%).: EBRD A Loan: 34mn;; B Loan: 20mn
Features:
1: Mandatory offtake at 43/Mwh, reviewed annually.. New Law 2007 setting tariff at min. 80% of household tariff plus 95% of previous yr premium, until 2020. 2: Carbon credits monetized via EBRD-managed Netherlands Emissions Reduction Co-Operation Fund. 3. Licence: no exclusive rights to water.